Oil prices jumped to near 2-1/2 year highs on Wednesday after an airstrike near Libya's oil infrastructure kept the market braced for a prolonged disruption from the OPEC nation and worried unrest might spread to other regional producers.

Fresh airstrikes hit Brega, about 2 kilometers (1.2
miles) from a Libyan oil terminal, after embattled leader Muammar Gaddafi
launched a land and air offensive to retake territory in Libya's east.

The reprisal sparked calls from rebels for foreign air
strikes on African mercenaries they said were helping him stay in power.

"It looks like an attack fairly close to what is one
of Libya's largest storage and export terminals," said Andy Lebow, trader
at MF Global in New York.

"It's hard to say if the Libyan government is trying
to target oil infrastructure in the east or whether they're just targeting
rebel-held areas, but the market's reacting to this threat either way."

Gaddafi pledged in a fiery speech before hundreds of
supporters he would crush the revolt against his rule.

By 12:35 p.m. EST Brent crude traded up $1.57 to $116.99
a barrel, off the session high of $117.81. Brent hit a 2-1/2 year high near
$120 a barrel on February 24 on the Libyan crisis.

U.S. crude futures rose $2.05 to $101.68 a barrel after
hitting $102.37. They rose above $103 on February 24.

Brent's premium against U.S. crude widened to more than
$16, after closing at $15.79 on Tuesday, when the Brent/West Texas Intermediate
spread hit $17.12, a record.

The head of Libya's oil company, Shokri Ghanem, told
Reuters the nation's problems could push prices over $130 a barrel if they
persist.

Libya's normal output of 1.6 million barrels per day had
been cut to 700,000-750,000 bpd as most of the industry's foreign workers had
taken flight after the crisis began, he said.

Governments in Yemen, Oman, Iran and Iraq have
clashed with protestors seeking reforms as popular unrest has spread in the
region holding more than 60 percent of the world's oil reserve.

Crude pared gains in the morning after the release of
U.S. oil inventory data from the U.S. Energy Information Administration showed
inventories at the Cushing, Oklahoma, delivery point for the New York
Mercantile Exchange's oil futures contract hit a record high.

Brimming stocks at the hub have been partly responsible
for the wide discount of U.S. crude to Brent in recent weeks.

Total U.S. inventories of both crude and refined products
fell, however, the EIA report showed.

**Reporting by Gene Ramos, Robert Gibbons, David
Sheppard, Matthew Robinson in New York; Jessica Donati-Bourne in
London; Florence Tan in Singapore; Editing by Marguerita Choy and David
Gregorio